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Sunday, August 22, 2010

SC: Revision Of Undisclosed Income In Settlement Application Not Permissible

Ajmera Housing Corporation vs. CIT (Supreme Court)

The assessee filed a settlement application u/s 245C (1) in which it disclosed additional income of Rs. 1.94 crores. This was revised to disclose further undisclosed income of Rs. 11.41 crores. After the s. 245D (1) order, a further disclosure of Rs. 2.76 crores was made. Despite the department's objection that the assessee had not made a "full & true disclosure", the Settlement Commission passed a final order u/s 245D (4) determining the total income at Rs. 42.58 crores and imposed token penalty of Rs. 50 lakhs. The department filed a Writ Petition to challenge the Settlement Commission's order. The High Court held that as the Settlement Commission had not applied its mind to the maintainability of the application u/s 245D (1) for want of full and true disclosure of income, the matter had to be remanded to the Settlement Commission for fresh consideration. That order of the High Court was challenged by the assessee in the Supreme Court. The Supreme Court remanded the matter to the High Court on the ground that a report given by the Commissioner estimating the undisclosed income at Rs. 42.50 crores which approximately coincided with the figure arrived at by the Settlement Commission had not been considered by the High Court. In the second round, the High Court held that in view of the multiple disclosures made by the assessee, the assessee could not be said to have made a full and true disclosure of income. However, it did not set aside the application on that ground but remanded the matter to the Settlement Commission for re-determination of the undisclosed income. The result of the second remand order of the High Court was that the Settlement Commission was not required to go into the question of maintainability of the application but only the question of determination of income. The department did not challenge the High Court's order though the assessee did. HELD dismissing the appeal:

(i) The disclosure of "full and true" particulars of undisclosed income and "the manner" in which such income has been derived are pre-requisites for a valid application u/s 245C (1) and unless the Settlement Commission records its satisfaction on this aspect, it will not have jurisdiction to pass any order on the settlement application;

(ii) The scheme of settlement does not contemplate revision of the income so disclosed in the application. If an assessee is permitted to revise his disclosure, in essence, he would be making a fresh application in relation to the same case by withdrawing the earlier application. S. 245C (3) prohibits the withdrawal of an application. An assessee cannot be permitted to resile from his stand at any stage during the proceedings. By revising the application, the applicant would be achieving something indirectly what he cannot otherwise achieve directly and in the process rendering s. 245 (3) otiose and meaningless. As there is no stipulation for revision of an application filed u/s 245C(1), the natural corollary is that determination of income by the Settlement Commission has necessarily to be with reference to the income disclosed in the application;

(iii) The High Court, having come to the conclusion that the assessee had not made a full and true disclosure of undisclosed income, was wrong in treating the application as maintainable. The High Court's order is clearly erroneous as it has not appreciated the object and scope of the scheme of settlement. "However, for reasons best known to the Commissioner, he has chosen not to challenge this part of the impugned order";

(iv) The argument of the assessee that the scope of judicial review being limited, the High Court should not have interfered with the order of the Settlement Commission is not acceptable. "We have no hesitation in observing that the manner in which assessee's disclosures of additional income at different stages of proceedings were entertained by the Settlement Commission, rubbishing the objection of the Commissioner that the assessee had not made a full and true disclosure of their income in the application u/s 245C(1), leaves much to be desired".